02.23.12

2011 was a very tough year for Inmarsat, when the company struggled to grow its MSS revenues at all in the face of a shipping downturn and military pullback from Afghanistan. Now 2012 has started on an even worse note, with LightSquared defaulting on its $56.25M Feb 18 payment to Inmarsat.

In the face of this pressure, Inmarsat have adopted a somewhat surprising response to increase their revenues. Inmarsat indicated in the latter part of 2011 that maritime E&E prices would be increased from January 1, 2012 in an attempt to shore up legacy maritime revenues. This move was at least somewhat logical, as it did not affect the early adopters who would be most likely to churn to other services.

However, in early 2012 Inmarsat also announced they were withdrawing the wholesale voice price cuts made in early 2011 when they trumpeted a suggested retail price of $0.55 per minute for FleetBB and FleetPhone voice calls. I’m told that apparently these wholesale price cuts had simply been absorbed by Inmarsat’s partners, and had not led to widespread retail price declines (because Inmarsat’s maritime crew calling rates were still uncompetitive with Iridium), but they did have a major negative impact on Inmarsat’s maritime voice revenues in 2011.

Even more remarkably, this week Inmarsat have just told partners that they will be increasing the price of ISatPhone Pro handsets by about 20% and withdrawing the two year prepaid card expiry for low value cards that I criticized back in 2010. It therefore appears that Inmarsat has finally recognized (as Iridium very bravely concluded when they continued with a premium handset strategy) that there is very little churn in the MSS handheld market and this cannot be increased simply through lowering prices.

UPDATE (2/27): I’m told that Inmarsat is also increasing the monthly subscription prices for postpaid ISatPhone Pro service very substantially, and we are likely to see retail prices rise by around $15 per month (in other words what is currently a ~$200 per year service for low end customers would potentially double in price). I’ve not yet managed to confirm when this price rise will take effect. This is likely to cause quite a lot of upheaval as distributors figure out how to reposition the ISatPhone Pro once it is no longer pigeonholed as the “cheap and cheerful” satphone option.

Taken individually all of these changes therefore seem to have a rational basis, but it has to be very worrying when distributors have to go and explain to their customers that Inmarsat’s prices are being increased in numerous different areas, when historically customers’ biggest complaint about Inmarsat has always been that they get a great service but are being gouged on price. This also comes in the context of a wider telecoms sector where it is almost universally accepted that prices will go down and services will improve each year. While these changes may be sufficient to allow Inmarsat to achieve (at best very modest) positive growth in MSS revenues during 2012, they could also set up more difficult comparisons in 2013, especially if some customers opt for competitors’ services instead.

More broadly, Inmarsat need their customers to respond positively to the company, especially now that direct sales are being emphasized and when Global Xpress is poised to enter a much more crowded maritime VSAT market in a couple of years time. As a result, it will be interesting to see how views on Inmarsat develop across the MSS industry as these price changes filter through to end customers, and whether customers’ satcom choices are affected in the future.